Market Report: Nigeria’s Minister of State for Petroleum Resources Calls for the Establishment of an African Energy Bank

The weekly Market Report is provided by Gladius Commodities of Lagos, Nigeria. Learn more about Gladius Commodities at www.gladiuscommodities.com.

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NIGERIA

The Minister of State for Petroleum Resources H.E. Chief Timipre Sylva has called for the establishment of an African energy bank to boost investments in the oil and gas sector. Minister Sylva said the need for an energy bank is important as developed nations are phasing out funding for hydrocarbon-directed investments in a move for cleaner sources of energy. He explained that the bank would be the only alternative available to African countries to explore the vast hydrocarbon resources in the continent. Minister Sylva also said the call for an energy bank is heightened by the passage of the Petroleum Industry Act, adding that the Act will open the oil and gas sector for huge investments in the future.

The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) Alhaji Mele Kyari announced that the Corporation and the Kaduna State Government signed a Memorandum of Understanding (MoU) to deepen gas utilization in the state. Alhaji Kyari stated that the MoU is in line with the Federal Government’s Decade of Gas initiative aimed at utilizing the nation’s abundant gas resources to power the nation’s economy through several strategic gas expansion projects such as the ongoing OB3 and Ajaokuta-Kaduna-Kano Gas Pipeline Projects.

Kyari also announced that the NNPC will purchase at least 300,000 barrels per day (bpd) of Nigeria’s crude from the Dangote oil refinery, which the government approved a 20% equity purchase by NNPC as its equity participation. Kyari noted the move guarantees a market for the crude grades produced by the country, estimated at under 2 million bpd. He also stated that this would not undercut the plans in place to rehabilitate and restart its refineries. The NNPC signed term sheets with Dangote Group in June for the stake in its $19 billion oil refinery.

Nigerian oil output has fallen sharply in the past few weeks due to an oil spill near the Forcados export terminal. Nigeria has been facing many operational and technical problems in the past few months. Key crudes such as Bonny Light, Escravos, Forcados, and Qua Iboe have all experienced production issues in 2021. Shell declared force majeure crude loadings of key export grade Forcados on August 13 due to “the curtailment of production and suspension of export operations as a result of some oil sheen noticed on the water around the loading buoy”. The terminal was still not fully ready for operations due to the oil spill. Nigerian crude and condensate output in August fell 6.7% month on month to an average of 1.53 million bpd, according to data from the Department of Petroleum Resources. The decline is due to the issues at Forcados, and crude supply remains below its Organization of the Petroleum Exporting Countries (OPEC) production quotas in the coming months due to the disruptions, with downside risk to 2022 forecast if operational setbacks continue.

SENEGAL

India’s Oil & Natural Gas Corp (ONGC) is planning on purchasing a significant minority stake in the $4 billion-plus Sangomar oil project off the coast of Senegal from Woodside Petroleum Ltd. ONGC is discussing acquiring an interest of 20% to 40% in the field. Also, Woodside is working with Jefferies Financial Group Inc. on the sale, which could attract other suitors. Deliberations are ongoing with no certainty they will result in a deal. Woodside has built its position in the Sangomar field through a series of stake purchases. Earlier in 2021, it bought FAR Ltd.’s participating interest after exercising its right to match an offer made by ONGC, taking its stake in the project to 82%, with the remainder held by the Senegalese government. Woodside acquired Cairn Energy Plc’s stake in Sangomar in 2020. Senegal has been attracting oil and gas companies on the hunt for new resources. Cairn drilled the first deepwater wells in Sangomar in 2014, making one of the largest oil finds globally that year. Dallas-based Kosmos Energy Ltd. then made a series of major offshore gas discoveries starting in 2016.

GLOBAL

On September 9, crude prices slumped almost 2% as top importer China announced plans to release oil reserves to reduce pressure on its refineries. The U.S. West Texas Intermediate crude futures settled down $1.16 at $68.14 per barrel, while Brent crude futures settled down $1.15 at $71.45 per barrel. The U.S. Energy Information Administration’s weekly report for September 8 showed that crude stockpiles fell by 1.529 million barrels in the week ending September 3 to 423.9 million barrels against analysts’ expectation of a drawdown of 4.75 million barrels.

Oil prices faced downside due to mixed U.S. inventory drawdown. Also, China’s state reserves administration said it would release crude reserves to the market in phases via public auction to ease the pressure of high costs on domestic refiners. Chinese majors had to replace supplies purchased for September and October loadings from Royal Dutch Shell Plc in the U.S.’ Gulf of Mexico. Shell, the largest oil producer in the region, declared force majeure on deliveries to Asia due to hurricane Ida damages. Almost 1.4 million bpd of the Gulf of Mexico’s offshore oil production remains shut, and 1 million bpd of refining capacity remains offline. However, Chevron has resumed partial production at one of its six platforms. Offshore pipeline restrictions are limiting its ability to accept oil at two onshore terminals.

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